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again, American taxpayers are struggling to complete their tax returns.
They will pay accountants and attorneys some $140 billion this year
to generate paperwork to accompany their checks to the IRS. The
46,900-page U.S. Tax Code governs the whole process, with enough
loopholes to lasso a light breeze.
Too bad this
isn't Russia.
Since January
1, 2001, Russians have enjoyed a 13 percent flat tax. That's right.
The once-Communist superpower now stands to the right of publisher
Steve Forbes on taxes. The former GOP presidential contender staunchly
advocates a 17 percent flat tax.
"Sometimes
philosophical seeds fall on interesting ground," Forbes says.
"After Marxism, which was the philosophical equivalent of the
IRS code, something understandable has obvious appeal."
The old Russian
system featured three income-tax rates: 12, 20, and 30 percent.
The top rate kicked in at the ruble equivalent of $5,000 in taxable
income. In contrast, the U.S. has six tax rates: 10, 15, 27, 30,
35, and 38.6 percent, the last of which takes hold at $307,500 for
married couples filing jointly.
Russia's single-rate
tax is reasonable and comprehensible. Most important, the Russian
government no longer uses graduated tax brackets to punish those
whose incomes improve. Americans should be so lucky.
After just
one year, the results of this law already look positive. As Hoover
Institution scholar Alvin Rabushka observes in a February 21 analysis
for www.russiaeconomy.org, "the 13 percent flat tax has exceeded
the expectations of the government in terms of revenue. For the
vast majority of taxpayers, its implementation is simple, and no
forms need to be filed." Adjusting for currency fluctuations,
Rabushka adds, "real ruble revenues increased about 28 percent."
This initiative
"is establishing the custom of paying taxes in Russia,"
senior Duma member Dr. Konstantin Remchukov told me over lunch last
fall. "It's greatly simplified everything." He says that
three years ago, tax revenue equaled 9 to 10 percent of Russian
GDP. By last November, that number had grown to 16 percent. This
follows the supply-side Laffer Curve: Lower marginal tax rates produce
higher revenues as both new and previously concealed economic activities
enter the tax base. No wonder Russia's GDP grew 5 percent in 2001.
"There
was a huge, monstrous non-compliance problem with the old system,"
says Dr. Richard Vedder, an Ohio University economics professor
and board member of the National Taxpayers Union. "People essentially
operated in the underground economy. There were a lot of payments
in kind where people were not paid in cash but in goods to facilitate
tax evasion. That problem, from what I understand, has not totally
disappeared but has dramatically declined in the last year or two."
Beyond the
flat tax, President Vladimir Putin has signed legislation to chop
the corporate tax from 35 percent to 24 percent, effective last
January 1. Putin hurled the double taxation of corporate income
onto the ash heap of history. The Kremlin also may offer Russians
privately invested social-security accounts, much as President Bush
wants for Americans. Thanks to actual and potential reforms, Putin
expects the average Russian to "be happy" by 2010.
In two former
Soviet socialist republics, meanwhile, flat-rate taxes fuel progress.
Since 1994, Estonia has had a flat tax of 26 percent while Latvia
has enjoyed a 25 percent flat tax since 1995. Both have stimulated
growth and higher revenues.
While ex-Communist
states confidently reject progressive taxation, America remains
plagued by Marxian class-warfare rhetoric. A May 28, 2000 New
York Times editorial praised the Russian flat tax's promise
to reduce "political corruption, removing layers of subsidies
in the code that officials like to shower on favored constituents."
However, the previous October 30, Republicans for a U.S. flat tax
were "disingenuous, when the basic result would ease the tax
burden on the super-rich," the Gray Old Lady screeched, her
dainty fist clenched overhead.
Senate Majority
Leader Tom Daschle (D., South Dakota) complained January 4 that
Republicans "have one unchanging, unyielding solution that
they offer for every problem: tax cuts that go disproportionately
to the most affluent."
Analyzing all
this from his dacha in Hell, V. I. Lenin must be stroking
his beard in utter bewilderment.
Of course,
the country that Lenin once misruled still must do plenty to unravel
his legacy. Stronger private property rights, a rule of law and
full respect for free speech are sorely needed. But with its 13
percent flat tax, Russia now has a far more impressive export than
those interlocking, wooden matrioschka dolls.
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